UK construction growth drops to 11-month low - PMI

LONDON (Reuters) - Growth in Britain’s construction industry tumbled to an 11-month low in July, as a lacklustre outlook for the economy and heightened political uncertainty deterred new orders, a survey showed on Wednesday.

Construction cranes are seen on a building site in central London, Britain, July 31, 2017. REUTERS/Hannah McKay

The Markit/CIPS UK Construction Purchasing Managers’ Index PMI) fell to 51.9 from 54.8 in June, below all forecasts in a Reuters poll of economists that had pointed to a reading of 54.5.

The survey is another mixed signal for Bank of England policymakers meeting this week to set interest rates. A sister survey on Tuesday had shown British manufacturing growth improved last month thanks to an upturn in exports. [GB/PMIM]

But Wednesday’s PMI for construction, which accounts for around 6 percent of British economic output, showed a sector struggling to maintain momentum.

“The combination of weaker order books and sharply rising construction costs provides a concern that an extended soft patch for the construction sector may be on the horizon,” said Tim Moore, senior economist at survey compiler IHS Markit.

Wednesday’s PMI showed new business volumes declined for the first time since August 2016, hurt by a slowdown in the commercial construction sector.

Last week the Royal Institution of Chartered Surveyors said demand to rent British commercial property had fallen to a five-year low.

Growth in the housebuilding sector also cooled, reflecting other signs of a slowdown in the housing market, according to the PMI. On Monday, the Bank of England said mortgage approvals fell to a nine-month low in June.

The waning growth in activity took its toll on construction firms’ confidence about the future, which fell to its lowest level in a year, IHS Markit said.

The Federation of Master Builders said on Monday that the fall in the sterling exchange rate was causing prices of materials to soar, squeezing margins for a third of small builders and forcing nearly a quarter to raise prices.

More important for BoE officials will be Thursday’s PMI for the services industry, which accounts for about 80 percent of British economic output.